Unit 2 Microecon.

On the graph​ shown, consumer surplus would be the​ area:

below the market demand curve and above the market price.

A linear PPC would show __________, and a PPC that is curved away from the origin would show _________

constant opportunity cost, increasing opportunity cost

During an economic​ slump, such as the 2008​ recession, if​ McDonald's faces an elastic demand​ curve, to maintain its sales it is likely to _______ the price of its product

decrease

A deadweight loss is the _______ in social surplus that results from a market _________

decrease, distortion

A fall in the price of wheat (which is a substitute for corn) will ________ corn prices by shifting the demand curve _______

decrease, leftward

Suppose there is a product that is being sold in a perfectly competitive market. If the demand for the product decreases, producer surplus will ________ since this change results in a lower ​price, which means there is ______ area between the supply curve and the market price for the good.

decrease, less

According to your​ graph, when some sellers enterenter a competitive​ market, the equilibrium price _______ and the equilibrium quantity _______

decreases, increases

An​ individual's willingness to pay measured over different quantities of the same good define the ________. If the retail price of the good​ increases, the _________ will decrease, all other things constant.

demand curve, quantity demanded

One reason economists in general _________ favor protectionism is because it ______ prices for consumers and ______ social surplus.

do not, raises, lowers

In a perfectly competitive​ market, a firm with multiple production plants will minimize total costs of production when

each plant produces where marginal revenue equals marginal cost.

If the competitive market is Pareto efficient then, government intervention cannot be justified on ______ grounds. It could however be justified on _______ grounds.

efficiency, equity

Invisible hand _____ allocates goods and services to buyers and sellers

efficiently

Terms of trade is the ____________

exchange rate of goods for goods.

Martha runs a business that makes designer jeans. Each of the seamstresses she employs uses one of the sewing machines on the factory floor. In the short​ run, the seamstresses are a _______ factor of production and the sewing machines are a __________ factor of production. The output of each seamstress is considered the ______ product

variable, fixed, marginal

Efficiency

when social surplus is maximized. This is a positive concept

Consumers in a competitive market are considered to be price takers because the purchases made by each consumer ________ have an effect on the market as a whole

will not

For an​ individual, consumer surplus is calculated as the difference between the ________ to pay and the price actually paid for a good.

willingness

The invisible hand leads to efficient production _____ an industry

within

If a good is considered to be a luxury​ good, does it mean that the Law of Demand does not​ hold?

​No, it only means that its income elasticity of demand is greater than​ 1.0, so the Law of Demand still holds.

Compared to the market for electric​ drills, the market for vintage buttons has fewer buyers and sellers. Social surplus is likely to be higher in the market for drills than in the vintage button market. Is it then correct to assume that the outcome in the drills market is Pareto efficient while in the vintage button market it is​ not? Explain.

​No, market size has no bearing on the attainment of Pareto efficiency.

​Sofia, a political science​ student, thinks that the government should intervene to revive declining industries like video stores and print newspapers. The​ government, she​ reasons, can resolve the coordination problem of getting the agents in these markets to trade. Do you agree with​ her? Explain your answer.

​No, these industries are declining not because of coordination problems​ but, rather, because of falling demand.

Assume that some of the buyers in this market are now willing to pay more for a drill than they did earlier. Does this mean that the market for drills is Pareto​ efficient? Explain your answer.

​Yes, as long as the market equilibrium still​ holds, the outcome is still Pareto efficient.

Would a​ profit-maximizing firm continue to operate if the price in the market fell below its average cost of production in the short​ run?

​Yes, but only if price stayed above average variable cost.

An increase in income shifts the budget constraint ________. The shift in income causes the budget constraint to increase ________, and the slope to _________ .

outward, by the same amount, remain the same

Short Run

period of time when some of the firms inputs cannot be changed EX: you can't buy another oven. If you're baking cakes today, you're limited by the number of ovens

Producer surplus is the difference between the ______ and the ________

price consumers pay, supply curve

All firms in a competitive market are said to be ____

price takers

_______ direct the invisible hand

prices

Complete specialization occurs when each​ individual, firm, or​ country:

produces only what it has a comparative advantage in.

The _______________ tells us how much we can produce from existing resources and technology

production possibilities curve

Candle makers in Town B do not need a license. Town​ B, however, has passed a new minimum wage law that increases the minimum wage that candle makers in Town B pay their workers. Assume that the candle market is perfectly competitive. i. Does this higher minimum wage shift a candle​ maker's short-run average fixed cost​ curve? ii. Does this higherr minimum wage shift a candle​ maker's short-run average variable cost​ curve? iii. Does this higher minimum wage shift a candle​ maker's short-run​ profit-maximizing choice of the number of candles to​ produce? With the higher minimum​ wage, the​ short-run average fixed cost curve _______ and the​ short-run average variable cost curve _________. The higher minimum wage _________ the​ short-run profit-maximizing quantity of candles to produce.

remains unchanged, shifts up decreases

If marginal cost​ (MC) is greater than average total cost​ (ATC), then ATC is ______ At this point of production the average fixed cost​ (AFC) would be ______

rising, falling

In the next 20 years a sizeable proportion of the U.S. labor force is expected to include many people who are above the age of 65. As a result comma the U.S. production possibilities curve would _______________

shift inward.

Every candle maker in Town A must have a license. The cost of a license is the same regardless of the number of candles a business produces. Assume that the candle market is perfectly competitive. i. Does this license shift a candle​ maker's short-run average fixed cost​ curve? ii. Does this license shift a candle​ maker's short-run average variable cost​ curve? iii. Does this license shift a candle​ maker's short-run​ profit-maximizing choice of the number of candles to​ produce? With the​ license, the​ short-run average fixed cost curve _____ and the​ short-run average variable cost curve _______ The license _______ the​ short-run profit-maximizing quantity of candles to produce.

shifts up, remains unchanged Does not change

A production possibilities curve​ (PPC) ___________.

shows the relationship between the maximum production of one good for a given level of production of another good.

Why can consumer surplus reduce?

some existing consumers no longer buy the good

Absolute Advantage

the ability of an economic agent to produce more output than another agent with the same resources

If it costs a firm ​$3,000 to produce 400 shirts and ​$6,500 to produce 900 ​shirts, then:

the firm is experiencing economies of scale. (3000/400=7.5) (6500/900=7.22)

In a competitive​ market, if economic profits​ exist, then:

the market supply curve will shift rightward and the price will decrease

The short-run supply curve for a perfectly competitive Firm is represented by _______

the portion of the marginal cost curve above average variable cost.

In the long​ run, the supply curve for a perfectly competitive firm is represented by​ __________.

the portion of the marginal cost curve above the average cost curve

A​ consumer's satisfaction is maximized when the marginal benefit from the last dollar she spent on one good is equal to the marginal benefit from the last dollar she spent on another good because​ ___________.

the reality of diminishing marginal benefits assures that any shift in consumption toward either good must necessarily make her worse off.

Deadweight Loss

the reduction in social surplus resulting from a market intervention

The production function​ is:

the relationship between the quantity of inputs used and the quantity of outputs produced.

Consumer Surplus is?

the value or total benefits one receives from a good in excess of the price paid for it.

There are ______ between making the economic pie as big as possible and dividing the pieces equally

trade-offs

When​ optimizing, the marginal benefit a buyer gained from the last dollar spent on a sweater was ​$1.25​, and the price of a pair of jeans was ​$88. The marginal benefit gained from the last dollar spent on a pair of jeans is ______.

$1.25

For 15 comma 50015,500 units of​ production, total variable cost is ​$294,500. For the 15,501st unit of​ production, total variable cost increases to 294,521.00. The average variable cost per unit is _______ and the marginal cost for the 15,501st unit is ________

$19 (294500/15500=19) $21 (294521-294500=21)

There are many identical firms with a simple cost​ structure: Total cost for Q​ = 0 is​ $6 and total cost for Q​ = 1 is​ $8. Each firm is incapable of producing anything​ more; in other​ words, total cost is infinite for any Q larger than 1. In the given​ scenario, the fixed cost for each firm is ​$____ If firms are free to enter and exit this​ market, the​ long-run price will be _____

$6 (The fixed cost equals​ $6 since this is the cost of producing zero output.) $2 (The marginal cost of the first unit equals​ $2. At any price below​ $2, firms will shut down and produce zero output.​ Therefore, in the short​ run, the price will be​ $2.) $8 (In the long​ run, price will be driven to the minimum ATC. In this​ case, the minimum ATC is given as​ $8 at Q​ = 1.​ So, in the long​ run, the price will be​ $8.)

Suppose Total Cost is given by the equation TC​ = 25 ​+ Q2​, where Q is the number of units produced and sold. This implies that Marginal Cost is MC​ = 2Q. In this​ scenario, the formula for ATC is: If the market price were ​$8​, this firm would want to supply ___ units of output In the long run, the price will be _____

(25/Q) + Q 4 (8/4)+4= 8 $10

Three years after graduating from​ college, you get a promotion and a 24 percent raise. Your consumption habits change accordingly. Suppose your consumption of frozen hot dogs has reduced by 16 percent. Your income elasticity of demand is ____ thus we can say frozen hot dogs are an ____ Suppose your consumption of pork chops has increased by 20 percent. Your income elasticity of demand is ____, thus we could say pork chops are a ____ Suppose your consumption of sockeye salmon has increased by 32 percent. Your income elasticity of demand is _____, thus we could say sockeye salmon is a ____

-0.667, inferior good .833, normal good 1.33, Luxury good

Acme Supply is analyzing a Production Possibilities Curve that compares production of wrenches ​(x​-axis) to production of pliers ​(y​-axis). If the slope of the PPC is 4​, the opportunity cost of producing pliers in terms of wrenches is ________

.25

When the price of bottled water increased from ​$2.50 to ​$3.00​, the quantity supplied by a firm increased from 100 to 110 bottles The price elasticity of supply is ___ In this case, the price elasticity of supply is _______

.52 relatively inelastic

Even though the price of an acre of land increased from​ $6,000 to​ $10,000, the quantity supplied did not change. The price elasticity of supply is ____ In this case, the price elasticity of supply is _____

0 perfectly inelastic

If the percentage change in quantity demanded for a good is an increase of 25​%, when the price of its complement increases by 30​%, the​ cross-price elasticity is ____

0.83 (.25/.30=0.833333)

The factors that contribute most to comparative advantage at the country level​ are:

1. Natural resources 2. Stocks of​ human-made resources 3. Technology 4.​ Education, work​ habits, and experience of the labor force 5. Relative abundance of labor and physical capital 6. Climate

3 Important Factors of Production Table

1. Specialization- marginal product increases with first workers. Workers are more efficient when they specialize in production and work together to produce a good 2. Law of Diminishing Returns- eventually, marginal product falls. At some point each additional worker contributes less output than the worker before 3. Marginal Product can be Negative. Capital is fixed in the short run. If more and more workers keep getting added, they will get in each other's way and actually cause output to fall

You are one of 5 identical firms​ (i.e., you all have the same​ costs) that sell widgets. Each day you have a fixed cost of​ $9 to operate. The marginal cost of your first widget is​ $1; second is​ $2; third​ $3; fourth​ $7; and for the fifth it is​ $8. You have a capacity constraint of​ 5, and you can only produce a whole number of widgets. The average variable cost​ (AVC) for a firm that produces 2 widgets is ​$_____ The​ market-level quantity supplied given the market price of a widget is​ $2.50 is _____ Suppose the​ market-level demand is fixed at 18. In other​ words, there is perfectly inelastic demand. In the short​ run, the equilibrium price will be ______ If firms are perfectly​ competitive, the equilibrium price in the long run will be_______________

1.50 (1+2)/2 10 Widgets (Each firm will supply two widgets as the marginal cost of the third widget will be greater than the market price. Since there are 5​ firms, the total​ market-level quantity supplied is 2​ × 5​ = 10 widgets) $7 (For the market supply to be​ 18, each firm must be willing to supply either 3 or 4 widgets. At a market price of​ $7, firms will be willing to supply 4 widgets as the marginal cost will be equal to the price.) $5 and the equilibrium quantity will be 3 (In the long​ run, price will be driven to the minimum ATC. At Q​ = 2, ATC is​ $6; at Q​ = 4, ATC is​ $5.50. Therefore, in the long​ run, the equilibrium price will be​ $5.)

Larry Krovitz is a salesman who works at a​ used-car showroom in​ Sydney, Australia.​ It's the last week of​ July, but he is yet to meet his sales target for the month. A​ customer, Harold​ Kumar, who wants to buy a Ford​ Fiesta, walks into the showroom. After taking one of the cars for a test​ drive, Harold decides to buy it. While ​$11,000 was the least that Larry would have been willing to accept for that​ car, he quotes a price of ​$19,000. After some​ bargaining, the car is sold for ​$12,000. In this case the producer surplus is _____ If the cost of the car to Larry is ​$11,000​, his profit is ​$___

1000 1000

Mary saw a bangle bracelet at an accessories shop that she liked and told her friend Susan that the most she would pay for it was ​$39.50. When she found out the price was ​$20.00​, she immediately bought it and gained ​$______ in consumer surplus. If Mary was to buy another bangle​ bracelet, her additional consumer surplus would ______.

19.50 Decrease

Calculate the price elasticity of supply in the following​ examples, then determine if supply is relatively elastic or​ inelastic, or perfectly elastic or inelastic. When the price of a pen increased from ​$2.50 to ​$3.00​, the quantity supplied by a firm increased from 100 to 150 pens. The price elasticity of supply is ____ In this​ case, the price elasticity of supply is____

2.20 Relatively Elastic

Imagine you are a buyer in a double oral auction with a reservation value of $17 and there is a seller asking for $12 If you accept this​ offer, you will gain ​$_____

5

Joey goes to a supermarket to buy shorts​ (s) and​ T-shirts (t). His budget constraint is given by ​$20 s​ + ​$5 t​ = $ 60. Suppose Joey purchases only​ T-shirts. Given his budget​ constraint, the price of each​ T-shirts is ​$_______​, and the maximum number of ​T-shirts Joey can purchase is ______.

5, 12

Fixing up old houses requires plumbing and carpentry. Jack​ (who is a jack of all trades but is a master of​ none) is a decent carpenter and a decent​ plumber, but is not particularly good at either. He can fix up two houses in a year if he does all of the carpentry and plumbing himself. His wage is ​$100,000 per year. ​Jack's average total cost of fixing up two old houses is ​$_____ George is an excellent plumber and Harriet is an excellent carpenter. George can do all of the plumbing and Harriet can do all of the carpentry to fix up eight houses per year. Each earns a wage of ​$100,000 per year. If George and Harriet work together and fix up eight old houses each​ year, their average cost is ​$______ This problem tells us that one of the sources of economies of scale is

50,000 25,000 Specialization

John is a soda drinker that likes both Coke and Pepsi. He usually picks whichever has the best price or is most convenient. If Pepsi is on sale for ​$11 a liter and Coke is charging ​$1.501.50 for the​ same, John's demand curve for Coke will​ experience:

A Leftward Shift (inward)

How does a​ consumer's budget set differ from his budget​ constraint? A. A budget set refers to all of the possible bundles of goods and services a consumer can​ purchase, while a budget constraint is limited to the bundles he can purchase using all of his income. B. A budget constraint refers to all of the possible bundles of goods and services a consumer can​ purchase, while a budget set is limited to the bundles he can purchase using all of his income. C. A budget set is simply the collection of the many budget constraints a consumer faces at different points in time. D. There is no difference at alllong dash—the terms​ "set" and​ "constraint" are interchangeable.

A budget set refers to all of the possible bundles of goods and services a consumer can​ purchase, while a budget constraint is limited to the bundles he can purchase using all of his income.

An inward shift on the budget constraint graph indicates? Whereas an outward shift on the budget constraint graph indicates? (In terms of increase/decrease in income.

A decrease in income An increase in income

An inward shift on the budget constraint graph indicates? Whereas an outward shift on the budget constraint graph indicates? (In terms of price increase/ decrease)

A price increase A price decrease

Pareto Efficiency

A situation where no one can be made better off without making someone else worse off

Combinations of apples and loaves of bread that a consumer could purchase would represent a ___________ while a ____________ represents the amount of apples and bread that a consumer could choose using his or her entire budget.

Budget Set Budget Constraint

Which of the following best describes why consumers are price​ takers? A. Individual transactions are too small to have much impact on the market price. B. Many individuals lack the skills to negotiate prices. C. If consumers​ don't pay the price​ asked, the store will just sell the product to someone else. D. Consumers​ don't know what it costs to make most products.

A. Individual transactions are too small to have much impact on the market price.

All of the following are factors that contribute to a​ country's comparative advantage​ except: A. aging population. B. climate. C. technology. D. natural resources.

A. aging population.

Constant Returns to Scale

ATC does not change as output increases Ex: If inputs double, outputs double. Why? Gains from specialization are fully realized

Economies of Scale

ATC falls as output increases EX: if inputs double, output more than doubles. Why? Large set up costs, worker specialization, etc.

Diseconomies of Scale

ATC increases as output increases Ex: if inputs double, output increases by less than double- why? Top heavy, too much management

Equity

Addresses the issue of a fair distribution of resources across society. This is a normative concept.

All else being​ equal, the steeper the demand​ curve, the _________ the social surplus in a market.

larger

A firm is experiencing economies of scale when its ______ declines as more output is produced

Average Total Cost

All of the following are factors in a​ firm's elasticity of supply​ except: A. inventories. B. market price. C. labor. D. time.

B. Market Price

Compared to the market for​ cars, the market for vintage buttons has fewer buyers and sellers. Social surplus is likely to be higher in the market for cars than in the vintage button market. Using the concept of Pareto​ efficiency, which of the following statements is likely to be​ true? A. The outcome in the market for vintage buttons is Pareto efficient because it is not a perfectly competitive market. B. The outcome in the market for cars is Pareto efficient because it is a perfectly competitive market. C. The outcome in the market for cars is not Pareto efficient because it is not a perfectly competitive market. D. The outcome in the market for vintage buttons is not Pareto efficient because it is a perfectly competitive market.

B. The outcome in the market for cars is Pareto efficient because it is a perfectly competitive market.

Which of the following would maximize social​ surplus? A Enforce trade beyond the equilibrium quantity. B. Trade at the competitive market equilibrium. C. Set price floors above the equilibrium price. D. Restrict the quantity sold in the market below the equilibrium quantity.

B. Trade at the competitive market equilibrium.

If you were to purchase a ​$700 Samsung smart phone from​ Amazon, we could conclude all of the​ following, except: A. you wanted a smart phone. B. you would rather have a laptop that costs ​$700. C. you believed that smart phone would bring satisfaction. D. you prefer that smart phone to anything else costing ​$700700.

B. you would rather have a laptop that costs ​$700.

When the ATC curve is decreasing we know the MC curve is ____, and when the ATC curve is increasing we know the MC curve is ______

Below the ATC curve, Above the ATC Curve

In a perfectly competitive​ market, all of the following are true​ except: A. Entry into the market is unrestricted. B. The products sold are basically homogeneous. C. The market supply cannot affect the retail price. D. Sellers are​ price-takers.

C. The market supply cannot affect the retail price.

All of the following are issues faced by central planners in a command​ economy, except: A. aligning the interests of the agents. B. incentive problems. C. setting quantity targets of production. D. coordination problems.

C. setting quantity targets of production.

When faced with the option of buying one pair of boots for ​$60 or three sets of sandals for ​$20 ​each, Janet chose the pair of boots. The opportunity cost for the boots​ was: A. a pair of sandals. B. $60. C. three pairs of sandals. D. $120.

C. three pairs of sandals.

All else being​ equal, the steeper the supply​ curve, the ______ the social surplus in a market

larger

The mercantilist economic doctrine was widely followed from the sixteenth to the eighteenth centuries in Europe. Mercantilists advocated the use of tariffs to restrict​ trade, as they believed that countries that export more than they import will increase wealth. What could be the problem with such an economic​ policy?

Consumers pay a price that is higher than the world​ price, reducing consumer surplus.

A firm is producing goods in a market where the market price is less than the​ firm's average total cost but greater than its average variable cost. At this point the firm​ should:

Continue to operate at a loss

Jonathan works at a convenience store and makes note of changes to sales after the price of liquid soap unexpectedly increases by 10 percent. He notices that the sale of shampoo increases by 5 percent and the sale of lotion decreases by 2 percent. The​ cross-price elasticity of demand between liquid soap and shampoo is? Based on the​ cross-price elasticity of​ demand, we can infer that liquid soap and lotion are

Cross-Price Elasticity= Percentage Change in Quantity of Demand X --------------------------------------------- Percentage Change in Price of Good Y Shampoo(-5%) / Liquid Soap (+10%)= -0.5 Complements

In a command​ economy, a planning agency sets prices for various inputs and final goods. In a market​ economy, supply and demand decide the prices of various goods. In both​ cases, there is a set of prices operating in the economy. Then why are market economies considered more efficient than planned​ economies? A. The price mechanism utilized by market economies reflects all that is collectively known and thus ensures that economic agents make trades that are in their best interest and maximize social surplus. B. The prices set by central planners tend to be​ inflexible, responding to changing conditions only when planners recognize that circumstances are changing and then figure out the significance of the underlying change. C. The prices set by central planners reflect their very incomplete knowledge regarding the multitude of factors that determine the interests and decisions of economic agents. D. All of the above.

D. All of the above

What could explain why South​ Korea's gross domestic product​ (GDP) per capita increased so much faster since the 1970s than North​ Korea's GDP per​ capita? A. South Korea has a market​ economy, while North Korea is a command economy. B. South Korea has been better able to solve the coordination and incentive problems. C. Resource allocation in South Korea is done much more efficiently than in North Korea. D.All of the above.

D. All of the above

Why is the equilibrium price in this market ​$40​,000? A. At this​ price, three consumers are willing to buy an electric car and three firms are willing to sell an electric car. B. At this​ price, the quantity demanded​ (three cars) equals the quantity supplied​ (three cars). C. At ​$4040​,000, three consumers have reservation values equal to or above ​$4040​,000 and three firms have reservation values equal to or below ​$4040​,000. D. All of the above.

D. All of the above

How do economic profits and losses allocate resources in an​ economy? A. When an​ industry's goods​ (or services) become more highly valued by​ society, positive economic profits emerge for firms in the​ industry, attracting new firms and their resources to that industry. B. Businesses always seek to improve their profits and in so​ doing, they move resources into the production of goods and services that society values the highest. C. When an​ industry's goods​ (or services) become less highly valued by​ society, firms in the industry suffer losses and thus become motivated to put their resources to more profitable uses elsewhere. D. All of the above.

D. All the above

Consider a good that you do not like at​ all, perhaps turnips. Given the market price for​ turnips, what would be your consumer​ surplus? ​A. Zero, unless someone actually pays you to eat them. B. Zero, since not liking turnips at all implies an unwillingness to pay anything. C. Some​ positive, but it will be a very small number. D. Both A and B are possible.

D. Both A and B are possible.

If you are the only​ buyer, and you know that the lowest ask price is $2​, should you accept this​ offer? A. ​Yes, accepting an offer from any other seller will reduce your surplus. B. No, as the only buyer you can extract a lower ask price. C.​Yes, since you will gain $15. D. Both A and C are correct.

D. Both A and C are correct.

Which of the following is not one of the common arguments against free​ trade? A. Countries with lax environmental policies allow for more pollution than those with strong environmental policies. B. A company is too weak to withstand competition from other firms and requires government protection to survive. C. Allowing countries to specialize in the production of only one good may result in the creation of banana republics. D. Firms always win at the expense of consumers. E. Fear of the effects of globalization on a nation's culture.

D. Firms always win at the expense of consumers.

All of the following are reasons for elasticity​ differences, except: A. available time to adjust. B. budget share spent on the good. C. closeness of substitutes. D. market demand.

D. Market Demand

Which of the following is not a source of a​ country's comparative​ advantage? A. Stocks of man-made resources B. Relative abundance of labor and capital C. Natural resourcesNatural resources. D. Quotas

D. Quotas

In which of the following scenarios would a country export a​ good? A. The world demand for the good is lower than the domestic demand. B. The world price for the good is below the domestic price. C. The domestic demand for the good is lower than the domestic supply. D. The domestic price for the good is below the world price.

D. The domestic price for the good is below the world price.

All of the following shift the Production Possibilities Curve outward​ except: A. increases in worker education. B. increases in natural resources. C. changes in productivity growth due to population growth. D. new competitors in the marketplace.

D. new competitors in the marketplace.

For an exporter under free​ trade, consumer surplus will ____________ compared to that in the absence of free trade.

Decrease

If your professor decided to give all students the highest grade in the​ class, your​ classmates' incentives to study would ______

Decrease

Anna Jones estimated the price elasticity of demand for new vehicles to be 0.88. If the price of cars increased by 20​%, one would expect the quantity of new cars demanded to _____, by _____

Decrease, 17.6% (.88 x .2= .176)

When the price​ increased, imports ________ Consumer surplus _________

Decreased, Decreased

A decreasing production pattern where successive increases in inputs lead to a decrease in marginal product is called the Law​ of:

Diminishing Returns

A market where sellers orally state asks and buyers orally state offers is known as​ a:

Double oral auction

Suppose a country has 100 westerners and 100 easterners. A westerner can produce either 6 units of food or 2 units of national​ defense; an easterner can produce either 2 units of food or 1 unit of national defense. According to the​ data, __________ have a comparative advantage in the production of defense. Suppose this country has decided it wants to produce 60 units of defense. In this​ case, the country will have more food to consume if the __________ produced these 60 units of defense. You should have anticipated this answer because​ ____________. Now suppose this country institutes a draft and chooses people for the military randomly. Suppose further that it drafts 20 westerners and 20 easterners​ (who together will produce 60 units of​ defense). If the country chooses to have a military​ draft, it will produce _______ units of food Compare the cost in terms of foregone food production under a draft to the cost under a volunteer army where the country pays the easterners enough to persuade them to become soldiers. The cost of defense measured in terms of foregone food production is ____________ with a draft than with a volunteer army

Easterners Easterners the easterners have a comparative advantage in the production of defense. 640........ If the country uses 20 westerners and 20 easterners to produce​ defense, then 80 westerners and 80 easterners will be available to produce food. In this​ case, food production will be left 640(80×6)+(80×2)=640 units of food. Higher

What is the difference between accounting profit and economic​ profit?

Economic profit subtracts both explicit and implicit costs from total​ revenue, while accounting profit only subtracts explicit costs.

How do price elasticities of demand relate to total revenues?

Elastic (Ed>1)- Increasing price-->Decreasing Revenues; Decreasing Price--> Increasing Revenues Unitary Elastic (Ed=1)- Increasing Price--> No Change; Decreasing Price--> No Change Inelastic (Ed<1)- Increasing Price--> Increasing Revenues; Decreasing Price--> Decreasing Revenues

Nalalya consumes two​ goods, food and clothing. The price of food is ​$8​, the price of clothing is ​$11​, and her income is $ 5000$. NalalyaNalalya always spends 30 percent of her income on food regardless of the price of​ food, the price of​ clothing, or her income. What is her price elasticity of demand for​ food? What is her​ cross-price elasticity of demand for food with respect to the price of​ clothing? What is her income elasticity of demand for​ food?

Exactly 1 Exactly 0 Exactly 1

If a country had exports of ​$160 billion and imports of ​$110 ​billion, they would be considered a net _____

Exporter

For a consumer with a given level of​ income, the combinations of goods for the budget setset will be _______ than for the budget constraintconstraint.

Higher

Fixed Factor of Production

Input that cannot be changed in the short-run and that stays the same regardless if how much output is produced

How has the pattern of trade changed in the United States since​ 1960?

Imports have grown faster than​ exports, and the United States has become a net importer.

For an exporter under free​ trade, producer surplus will __________ compared to that in the absence of free trade.

Increase

Given that burgersburgers and fries are complementary​ goods, if the price of fries decreases the demand for both goods will rise. Is this an accurate​ statement?

It is somewhat inaccurate. The decrease in the price of friesfries will increase the quantity demanded​ (not the​ demand) for fries. It​ will, however, as the statement​ claims, increase the demand for burgers.

Salmon fishing in Alaska is a seasonal​ business; May through September is the best time to bait salmon and halibut. Toland​ Fisheries, a small commercial​ fishery, recorded its highest ever catch last year. They started this​ year's fishing season with the same number of workers and equipment. With the new season also starting​ well, Toland has increased hiring substantially.​ However, the fishery did not make any additional investment in trawlers and other fishing equipment. Other things remaining​ unchanged, what is likely to happen to the marginal product of each new worker in the short​ run? In the long​ run, if Toland Fisheries would like to increase the productivity of its​ workers, it will need to​ _______

It will be increasing at a decreasing​ rate, meaning each additional worker will have a lower marginal product of labor than the previous one hired. increase its amount of capital and equipment.

Hardware stores charge higher prices for snow shovels after a big snow storm. What role do prices play in the snow shovel​ market?

It would incentivize distributors to ship more snow shovels into the area to meet the increased demand

How would the introduction of legal or technical barriers to entry affect the​ long-run equilibrium in a perfectly competitive​ market?

It would reduce any downward pressure on prices from entry and allow economic profits in the long run.

How to Interpret the income elasticity of demand

Less than 0= Inferior Good Less than 1 and greater than 0= Normal Good Greater than 1= Luxury Good

What are the types of goods that are causing the shift in the balance of imports and exports in the United​ States?

Manufactured goods have played an important role in the​ shift, even though the number of manufactured goods has increased.

Which of the following describes the​ long-run competitive market if demand were to​ increase? A. Market price​ increases, economic profits​ increase, short-run market supply​ decreases, long-run supply settles at minimum AVC B. Market price​ decreases, economic profits​ decrease, short-run market supply​ increases, long-run supply settles at minimum ATC C. Market price​ increases, economic profits​ increase, short-run market supply​ increases, long-run supply settles at minimum ATC D. Market price​ decreases, economic profits​ decrease, short-run market supply​ decreases, long-run supply settles at minimum AVC

Market price​ increases, economic profits​ increase, short-run market supply​ increases, long-run supply settles at minimum ATC

A perfectly competitive firm will choose to shut down when the _______ intersects the marginal cost curve below the ________

Price (marginal revenue), average variable cost curve

How To Interpret the cross-price elasticity

Negative=Complement Zero=Independent Positive=Substitute

Suppose one firm accounts for 55 percent of the global market share for a​ product, while 147 other firms account for the remaining 45 percent of the market. With such a large number of buyers and​ sellers, is this market likely to be​ competitive?

No, even though there are many firms in the​ market, there is one firm large enough to influence the market price.

In the market for sneakerssneakers​, suppose​ Green's price elasticity of demand is 0.5​, ​Smith's price elasticity is 1.5​, and the price elasticity of all the other consumers is greater than 0.5 but less than 1.5. Could the market price elasticity be less than 0.5 or greater than 1.5​?

No, it must lie between 0.5 and 1.5.

Do all consumers in a competitive market enjoy the same amount of consumer​ surplus?

No, since considerable variation exists among consumers in terms of tastes and incomes.

You are planning to build an apartment building. Your market research department estimates that your revenues will be ​$800,000. Your engineering department estimates the cost will be ​$600,000. You started construction and spent ​$200,000 to build the foundation when the recession begins. This causes the market research department to revise its revenue estimates downward to ​$399,950. Should you complete the apartment​ building?

No, the remaining cost to build is ​$400,000 and you only expect to earn ​$399,950​; you will ignore the ​$200,000 spent since it is a sunk cost.

Perfectly Elastic

Parallel Line

Long Run

Period of time when all of the firm's inputs can be changed EX: you can buy another oven, or build another kitchen

The demand curve graphs a consumers responsiveness to a change in ______. The points on the curve can be verified through ______.

Price, Marginal Analysis

Which of the following is true about how a firm in a competitive market decides what level of output to produce in order to maximize its​ profit? A. Produce until marginal cost is furthest above average total cost. B. Produce up to the point where price equals average total cost. C. Produce at the point where price is equal to marginal cost. D. All of the above.

Produce at the point where price is equal to marginal cost.

Is producer surplus always equal to​ profit?

Producer surplus equals profit when marginal cost and average total cost can be represented with the same curve.

The goal of a business in a perfectly competitive market is to​ maximize:

Profits

Solutions:

Profits= Total Revenues - Total Costs Total Revenue= Profits X Quantity Total Cost= Average Total Cost X Quantity Profit= (Profit X Quantity) - (Average Total Cost X Quantity) = (Profits - Average Total Costs) X Quantity

Which of the following shows the arc elasticity method of calculating the price elasticity of​ demand?

Q2−Q1 __________ Q2+Q1/2 _________________ P2−P1 ________ P2+P1/2

Production Possibilities Curve

Shows the relationship between the maximum production of one good for a given level of production of another good.

Why does a demand curve with a constant slope not have a constant​ elasticity?

Slope is based on absolute change and elasticity is based on percentage change.

Dominic is willing to pay​ $12 for a single​ pizza; Stephany is willing to pay​ $7; and Tyler is willing to pay​ $5. There are no other potential consumers for pizza.​ Cheezbuzz, the supplier of​ pizza, has a cost of​ $1 for the first​ pizza, $2 for the second​ pizza, $3 for the​ third, $4 for the​ fourth, and so on. In a closed market​ equilibrium, the social surplus will be​ $____ If the world price is​ $10.50, a total of _____ pizzas will be exported. If the world price is​ $2.50, the social surplus will be ​$_____

Social surplus is the sum of consumer surplus and producer surplus. In this​ case, the social surplus will be​ ($12 -​ $1) +​ ($7 -​ $2) +​ ($5 -​ $3) =​ $11 +​ $5 +​ $2 =​ $18. If the world price is​ $10.50, domestic demand will be equal to 1 pizza and domestic quantity supplied will be equal to 10 pizzas.​ Therefore, a total of 10​ - 1​ = 9 pizzas will be exported. Social surplus is the sum of consumer surplus and producer surplus. In this​ case, if the world price is​ $2.50, the social surplus will be equal to​ ($12 -​ $1) +​ ($7 -​ $2) +​ ($5 -​ $2.50) =​ $11 +​ $5 +​ $2.50 =​ $18.50. An increase in social surplus occurs because a single lower cost pizza​ ($2.50 instead of​ $3.00) will now be imported instead of being produced domestically.

Why is free trade​ controversial?

Some individuals may lose

What is the problem with the argument that infant industries need to be protected from foreign​ competition?

Starting a company in isolation may deprive it of​ "technological spillovers" that its​ competitors, all located near one​ another, may enjoy.

If a​ cross-price elasticity is​ positive, then the two goods are ____. If the price of coffee goes​ up, and as​ such, the demand for Coffee Mate​ decreases, this would indicate a ______ cross-price elasticity and that the two goods are _______.

Substitutes, negative, complements.

There are winners and losers within trading states and countries. The winners from trade gain more _____ than the losers lose.

Surplus

Walmart and Target are both discount retailers.​ However, during the Great Recession of​ 2009, Target's​ same-store sales fell while sales at Walmart actually increased. What could potentially explain this outcome?

Target positions itself in the market as a​ low-cost retailer of home accessories and clothing. Walmart stocks more goods like food and health items than Target

Comparative Advantage

The ability of one economic agent to produce at a lower opportunity cost than another agent

What is the goal of the seller, and what three problems must a seller solve?

The goal of the seller is to maximize profit. In order to achieve this goal, sellers must solve 3 problems: 1. How to make the product 2. What is the cost of making the product 3. How much can the seller get foe the product in the market

Based on your understanding of how the invisible hand​ works, which of the following decisions is likely to correct the problem of shortages of cabs in​ Beijing?

The government should lift the price control imposed on the base fare of cabs.

The market for economics textbooks is in equilibrium. The government decides to imposeimpose export restrictions on​ paper, leading to aa decreasedecrease in the demand for paper. How does social surplus in the market for textbooks​ change? Why?

The social surplus increases. Producer surplus may increase or decrease Consumer surplus increases

Social Surplus

The sum of consumer and producer surplus =$___ CS + $___PS = $___ Social Surplus

According to reports in the Chinese​ media, commuters in Beijing are facing a somewhat paradoxical​ situation: They find it difficult to get a cab while hundreds of cabs lie idle during rush hour. The demand for taxis in Beijing has increased as average incomes have risen.​ Government-determined gasoline prices have also increased. But the​ government, worried about rising prices for cab​ rides, has left the​ cabs' base fare unchanged. Which of the following statements is true of the market for cabs in​ Beijing?

There has been a rightward shift of the demand​ curve, while the supply curve has remained unchanged.

Are all efficient outcomes also​ equitable? Explain.

There is really no definitive answer to this question since issues surrounding efficiency and equity are the domain of normative​ economics, where subjective value judgments are made.

The aggregate difference between the average total cost ​(ATC​) and average variable cost ​(AVC​) for all units of production is​ the:

Total Fixed Cost

Perfectly Inelastic

Vertical Line

In a perfectly competitive​ market, an increase in market price shifts the marginal revenue​ (MR) curve _______, ________ the quantity supplied

Up, Increasing

A company pays each of its workers on a per diem basis. If another worker is​ hired, ________ costs will increase while ________ costs will remain the same.

Variable, Fixed

If there are no​ "losers" in free​ trade, does it matter if wages and employment fall when a country engages in free​ trade?

Yes, the government might not be able to effectively carry out such wealth transfers.

The price elasticity of demand shows the percentage change in the quantitypercentage change in the quantity demanded of a good due to nbspdemanded of a good due to ________ change in a good's price.

a percentage,

The International Space Station​ (ISS) is a habitable satellite that was launched by NASA and space agencies of other countries. In​ 2009, NASA was considering shutting down the ISS within the next 5 to 6 years. Among those who were opposed to this idea of​ de-orbiting the ISS was Senator Bill​ Nelson, who was quoted as saying​ "If we've spent a hundred billion​ dollars, I​ don't think we want to shut it down in​ 2015." The​ "hundred billion​ dollars" that Senator Nelson is referring to is known as __________ Given this​ information, the​ senator's comment is ______ since these types of costs ______ affect current and future decisions.

a sunk cost flawed, shouldn't

The​ long-run supply curve is the portion of the MC​ curve:

above the ATC curve.

A firm with positive _____ profits might still choose to exit an​ industry, while a firm with positive ______ profits would not

accounting, economic

the invisible hand efficiently allocates resources ______ industries

across

When economies open up to free​ trade, trading partners _________ benefit

always

A negative income elasticity would indicate ___. If your income increased 1010​% and your demand for diamond jewelry increased 1515​%, diamond jewelry would be considered ______.

an inferior good, a luxury good.

All of the following could cause an increase in producer surplus​ except: A. a shift in the market demand curve. B. a higher equilibrium price. C. a downward shift in the marginal cost curve. D. an upward shift in the marginal cost curve.

an upward shift in the marginal cost curve.

Bilateral negotiations often lead to prices​ that:

approach the theoretical equilibrium price.

On the Production Possibilities​ Curve, possible production levels are​ represented:

at any point on or below the curve.

Is it true that a country needs to have an absolute advantage in the production of a good in order to benefit from trade in that​ good? Countries that do not have an absolute advantage in the production of a good _______ benefit from a trade

can

When a country engages in free​ trade, the​ "winners" __________ compensate the losers

can

In a perfectly competitive​ market, a seller _____ choose to raise the price of its good since all sellers in the market produce _____, so raising the price would result in ______.

cannot, identical goods, losing all of its customers

In a ________ economy, a central authority determines the goods and services produced while a ________ economy is based on price signals and strong economic incentives.

command, market

The basis for trade is _________

comparative advantage

Specialization is based on __________, not ___________ advantage

comparative, absolute

Many​ service-sector jobs in the United States have moved to other countries where these jobs are done at a fraction of the cost. The outsourcing of jobs overseas is heavily debated by​ politicians, policymakers, and economists in the United States. In the domestic economy when outsourcing​ exists, prices ____________, social surplus ______________, and labor market welfare _________________ The economy as a whole benefits from outsourcing if the gain in social surplus is ___________ the losses in labor welfare.

fall, increases, decreases greater than

Suppose a market for cheap sunglasses is in a​ long-run competitive equilibrium and that the price is​ $10. Every producer of sunglasses sells​ 5,000 pairs. A cloudy summer decreases the demand for​ sunglasses, which causes the market price to change. As a​ consequence, in the short​ run, each firm sell _____ 5,000 pairs of​ sunglasses, and in the long run each firm will sell ______ 5,000 pairs of sunglasses

fewer than, exactly

You read a story in the newspaper about a car company that has recently been fined five billion dollars by government regulators. The fine is for past infractions that are no longer relevant to how the firm will produce cars going forward. The story contains the statement​ "clearly, the company will now need to raise prices in order to recover this​ loss." If it is impossible for the company to pay its​ obligations, the company should __________

file for bankruptcy

Which of the following criteria would most likely influence an optimizing​ buyer's purchasing​ decisions? A. lowest price B. lowest opportunity cost C. highest marginal benefit per dollar spent D. highest marginal benefit

highest marginal benefit per dollar spent

If the domestic price for a good is lower than the world price when a country opens itself to​ trade, domestic suppliers will ________ the price of the​ good, which in turn will ______ the domestic demand of the good

increase, decrease

A flood that destroys a great deal of the corn crop will _______ corn prices by shifting the supply curve for corn ________

increase, leftward

A change in consumer taste away from hot dogs towards corn dogs will ______ corn prices by shifting the demand curve ________

increase, rightward

An increase in the number of demanders in the corn market will ______ corn prices by shifting the demand curve for corn ______

increase, rightward

If the income elasticity of demand for a good is negativenegative​, the good is

inferior

Variable Factor of Production

input that can be changed in a certain period of time and that changes in the level of output changes

In a perfectly competitive​ market, when firms enter and exit competitive​ markets:

it is a sign the market is working well

According to the principle of comparative​ advantage, both parties will engage in a trade if the trading​ price:

lies between their opportunity costs.

When a country opens itself to trade and becomes an importer of goods and​ services, sellers _____ and buyers ______

lose, win

National security concerns might cause a nation​ to:

maintain a variety of agricultural industries.

One reason a country might seek to implement protectionist policies could be​ to:

maintain its​ culture's uniqueness.

What isn't a true statement about marginal revenue in a perfectly competitive market

marginal revenue is equal to price times quantity

Equity vs Efficiency Trade-Off

markets are efficient, but don't always result in fair outcomes. In some cases, concern for equity may outweigh efficiency The government often attempts to address efficient outcomes that we many not consider to be equitable

The invisible hand directs consumers and producers to _______

maximize their surplus And leads to the highest level of social welfare

Minimum efficient scale is the lowest level of output where​ long-run average total cost is _______

minimized

By producing to where marginal revenue equals marginal​ cost, the seller​ is:

minimizing an existing loss

Absolute advantage is the ability of an​ individual, firm, or country to​ produce:

more of a certain good than other competing​ producers, given the same number of resources.

During peak​ demand, service-based companies using a​ surge-pricing model often charge more than during less busy times in order to

move the market to equilibrium

For two goods that are complementscomplements​, the​ cross-price elasticity of demand will be

negative

An outcome is Pareto efficient if

no individual can be made better off without making someone else worse off.

Terms of trade are determined _____________

on the basis of opportunity costs.

Suppose you had to organize a double oral auction for a good that has perfectly elastic demand. Do you expect prices to approach the competitive​ equilibrium?

​Yes, there is no reason why price in a double oral auction for a good with perfectly elastic demand would not be expected to approach the equilibrium price.

Is it possible for accounting profit to be positive and economic profit to be​ negative?

​Yes, this could occur if explicit costs were modest and implicit costs were high. EX: If you use a diamond mine as a tourist attraction instead of using it for mining

Are there​ real-world markets that resemble double oral​ auctions?

​Yes, trading on the New York Stock Exchange is very similar to a double oral auction.

The market for electric drills in a certain country is characterized by a large number of buyers. The market for drills is in equilibrium. Does this also mean that it is Pareto​ efficient? Explain your answer.

​Yes, with the market in​ equilibrium, no one participant can be made better off without someone else being harmed.